Friday, September 12, 2014

Euro-Pro sought to keep Homeland from publicizing the
court’s preliminary injunction against it (granted on Lanham Act false
advertising grounds). Shortly after the preliminary injunction issued, Homeland
sent letters to a number of retailers carrying Euro-Pro products. It notified
retailers of the injunction, stated that retailers with notice of the
injunction “must also comply,” and said that Homeland would bring contempt
proceedings against violators. The letters also said that the injunction was
based on a “finding” of literal falsity, said that the litigation was ongoing,
and asserted that “[Plaintiff] will likely be entitled to monetary damages for
every sale” and that “[i]f Euro Pro is unable to pay the damages, then any
company in the sales chain can be held liable for the damages.”The letters also referenced another recent
case in which a federal court in Pennsylvania also issued a preliminary injunction
against Euro-Pro for false advertising.

Euro-Pro wanted this stopped, as well as a court-approved
corrective notice. Euro-Pro didn’t bring a separate claim (e.g., defamation),
but the court considered its inherent equitable power to protect its own orders
from “evasion, abuse and misuse.” Here, the court found, justice and the public
interest might require some sort of order if Homeland misrepresented the
content of the injunctive order, “asserting unlikely or spurious claims in
terrorem in order to chill market demand for Defendant’s products.” Euro-Pro
argued that this was occurring.

Tthe court found that Homeland’s letter “accords, in at
least a narrow sense, with the language of the injunctive order” in that the
court did find literal falsity. Taken in isolation, however, the language about
the court’s “finding” could create the impression that there was a final
judgment on the merits. Yet Homeland’s letter didn’t fall into this trap. Before
talking about the “findings,” the letter stated correctly that the injunction
at issue was a “preliminary injunction.” The language wasn’t “a model of
absolute clarity on this point—it might more advisably have included words like
‘ongoing’ or ‘pending’”—but it conveyed the procedural posture of the case. There
was still some danger of misleading the unsophisticated, but “the facts
presented seem to show that many of the retailers who have expressed concern following
the letters are represented by competent, cautious counsel,” for example a
letter from Costco mentioning discussions with in-house counsel and that Costco
understood that a “preliminary” finding had been made.

Euro-Pro argued that Homeland misrepresented the scope of
the injunction by advising retailers that those with notice had to comply with
the court’s order. Euro-Pro contended that retailers were not bound, because
they were neither parties nor nonparties who have notice of the injunction and were
“in active concert or participation with” the enjoined party. But whether this
was so was not clear. The Ninth Circuit had no precedent on retailers who sell
a party’s enjoined product, while other circuits were split. Aevoe Corp. v. AE
Tech Co., 727 F.3d 1375, 1384 (Fed. Cir. 2013) (yes); Paramount Pictures Corp.
v. Carol Pub. Grp., Inc., 25 F. Supp. 2d 2, 376 (S.D.N.Y. 1998) (no). But the facts also differed: Aevoe involved a retailer’s exclusive
distribution agreement with the enjoined party, while in Paramount retailers completed their purchases of the enjoined
products prior to the injunction. “And in general the inquiry is likely to
always be fact-intensive.”

Given the fact-specificity of the cases and the unsettled
state of the law, the court couldn’t say for certain that Homeland
misrepresented the scope of the injunction. Its liability theory might not be
sustained in an actual contempt hearing, but lots of letters warning of
potential legal action have that characteristic. “This does not mean that
courts should enjoin or constrain such letters, where the party’s legal theory
is at least plausible and the potential action is not purely frivolous or
harassing.”

Finally, congressional policy providing for injunctive
relief in Lanham Act cases didn’t favor relief here. Given that the purpose of
the Lanham Act is to “protect[] persons engaged in [commerce within the control
of Congress] against unfair competition,” Pom
Wonderful, then the finding of likely success and entitlement to a
preliminary injunction allows Homeland to “aggressively assert the injunction’s
protection in the marketplace in order not to be subject to unfair competition.”

However, Euro-Pro had a point. “Plaintiff’s reference in its
letters to an unrelated case in the Western District of Pennsylvania, involving
a different plaintiff and different facts, served no purpose in asserting its
theory of nonparty liability for contempt in this case. That portion of the letter
strayed far beyond what was necessary to put retailers on notice of the
injunction in this case.” The court wasn’t going to order Homeland to stop
referring to this case “out of deference to potential speech concerns.” But if
Homeland didn’t immediately delete the reference, the court would set a hearing
on whether the preliminary injunction should be vacated. (… I’m not sure that
avoids free speech issues.) Other than that, the preferred remedy was more
speech. The court wouldn’t approve a Euro-Pro notice calling Homeland’s
characterization of the injunction “erroneous” and stating that “retailers are
not subject to the injunction.” But Euro-Pro was free to explain the lawsuit,
the scope of the injunction, and its own theory of “active concert or
participation” to retailers.

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